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Chapters 1 and 2
| Term | Definition |
|---|---|
| free enterprise system | a system in which individuals are free to produce the goods and services they choose |
| profit | the amount earned above the amount of expense incurred to keep the business operating |
| loss | the result when a business spends more money than it earns |
| entrepreneur | a person who transforms ideas for products or services into real-world businesses |
| capital | money supplied by investors, banks, or owners of a business |
| service business | a business that supplies a needed service for a fee |
| merchandising business | a business that buys finished goods and resells them to individuals or other businesses |
| manufacturing business | a business that buys raw materials and transforms them into finished products by using labor and machinery |
| sole proprietorship | a business owned by one person |
| partnership | a business owned by two or more persons, called partners, who agree to operate the business as co-owners |
| corporation | a business organization recognized by law to have a life of its own |
| charter | the legal permission, granted by state, that gives a corporation certain rights and privileges and spells out the rules under which the corporation is to operate |
| accounting system | a system designed to collect, document, and report on business transactions |
| manual accounting system | a type of accounting system in which information is processed by hand |
| computerized accounting system | a type of accounting system in which information is recorded by entering it into a computer |
| GAAP | Generalized Accepted Accounting Principles |
| financial reports | documents that represent summarized information about the financial status of a business |
| financial accounting | the type of accounting that focuses on reporting information to external users |
| management accounting | the type of accounting that focuses on reporting information to management; often referred to as accounting for internal users of accounting information |
| business entity | the accounting assumption that a business exists independently of its owner's personal holdings. The accounting periods and reports are maintained separately and contain financial information related only to the business. |
| accounting period | the period of time covered by an accounting report |
| going concern | the accounting assumption that a business is expected to operate indefinitely |
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